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Pensions to rise 3.7% in January

Analysis

Pensions paid by social security could be raised by 3.7% from January, business daily Napi Gazdasag calculated based on a planning document of the 2012 budget published last week.

As inflation is projected at 3.5% by the government and 3.6% by the National Bank of Hungary for 2012, this will be sufficient to preserve the real value of pensions next year, the paper said. Following the decline in the real value of pensions in recent years, the value of pensions after the raise will be level with the 2002-2003 period in real terms.

The first draft of the 2012 budget is expected to be completed and approved by the government at the end of August and will then be sent to the Fiscal Council for assessment.

The planning document reveals that central budget organisations have to reckon with 3.5% inflation and 4.4% gross wage increase in 2012. Pensions, however, are indexed to inflation and net wage growth. The rules of pension indexation also depend on economic growth. If the projected economic growth remains below 3%, pensions have to be indexed to inflation alone. However, in years when GDP growth is projected between 3% and 4%, such as 2012, inflation must be taken into account with a weight of 80% in the indexation and projected net wage growth with 20%.

If net wage growth were significantly higher due to a change in the tax rules, the pension raise would be 4%, according to the calculations of Napi Gazdasag.

In January 2011, pensions increased 4.4% (not including those of whom retired in 2010), thus, the real value of pensions rose half a percentage point this year.

After increasing between 10%-2.5 % annually from 2002 to 2006, real value of pensions fell 3.8% in 2007, grew 0.4% in 2008, then fell again 6.5% in 2009 and 2.8 % last year.

 

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